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Amazon buying Whole Foods Market


In a blockbuster deal that adds even more heat to the already competitive supermarket industry, online line giant Amazon is acquiring Whole Foods Market in an all cash transaction valued at $13.7 billion, or $42 a share.

The deal, which is Amazon's largest transaction to date, benefits both companies, said analyst Neil Saunders, managing director of GlobalData Retail. But he sees it as potentially "terrifying" to other supermarket retailers.

"Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant," Saunders said. "Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players."

John Mackey, co-founder and CEO of Whole Foods, will remain chief executive of the grocer after the deal closes. Stores will continue to operate under the Whole Foods banner, and the company's headquarters will remain in Austin, Texas. The transaction is expected to close during the second half of 2017.

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” stated Mackey.

Analyst Saunders noted that the purchase fulfills Amazon's ambition to be a serious player in the grocery market, giving it an established business that it can transform through its technology and supply chain expertise along with a well-known and well-regarded brand that can, ultimately, be sold across Amazon platforms.

"For Whole Foods, the deal will come as a relief," Saunders said. "The one well-regarded grocery chain has been under pressure for a couple of years and has struggled with sales, margins, and profits. Amazon is effectively a white-knight that has come to its rescue."

Other analysts pointed to the timing of the announcement, which came the day after German discount grocer Lidl made its long-awaited entry into the United States, with plans to open 100 stores within the year.

"Jeff Bezos is a master of PR," said Kelly Sayre, analyst, retail/CPG, IHL Group. "He is brilliant at timing announcements for coopting the news cycle. The drone story and Amazon Go stories of the last two years just happened to coincide with Black Friday weekend. It is not lost on us as analysts that this announcement just happens to coincide with the day(s) that Lidl opened its first stores in the U.S., and Walmart bought Bonobos. And it came just after Aldi announced a 3.4 billion level of investment in expanding in the U.S."

Sayre noted that the deal puts a spotlight on the shifting business model of the U.S. supermarket industry, which she said has been underinvesting in IT, customer experience, and associate training for decades.

"The business model has always been made by impulse items and selling shelf-space to manufacturers," she said. "That model is changing rapidly. Those who adapt will be just fine. Those that don’t will continue to be marginalized. The battle between Walmart and Amazon will just continue to escalate."

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